[2024] KETAT 422 (KLR)

Twinbros General Contractors Ltd v Commissioner of Domestic Taxes (Tax Appeal 211 of 2023) [2024] KETAT 422 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 422 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 211 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

March 22, 2024

Between

Twinbros General Contractors Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Backkground 1. The Appellant is a limited company incorporated in Kenya whose business activity is in construction services.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent issued the Appellant with two additional assessments dated 24th July 2020 and 23rd September 2021. The Appellant lodged an objection on iTax on 8th October 2021. The Respondent issued the Appellant with an objection decision confirming the tax assessments through the Objection decision dated 29th August 2022.

4. Dissatisfied with the Respondent’s decision, the Appellant made an application under Miscellaneous Number E012 of 2023 to the Tribunal to file its Appeal out of time and the same was granted on 3rd March, 2023. Thereafter, the Appellant lodged its Notice of Appeal dated 8th March, 2023 on 9th March, 2023.

The Appeal 5. The Appellant premised its Appeal on the following grounds as outlined in its Memorandum of Appeal dated 8th March 2023 and filed on 9th March 2023:i.That the Respondent neglected to consider the Appellant's merited plea that the lodging was occasioned by the unprecedented ravages of the Covid-19 pandemic which entailed occasions of strict quarantine in compliance with the government’s measures of combating the Pandemic which had adverse effects on both humans and businesses and the Appellant was not exempted for the economic effects.ii.That the Respondent failed to understand and give consideration to the fact that the Director of the Appellant was heavily affected having contracted the virus and being bedridden for a period of six months.iii.That the Respondent erroneously overlooked the fact that prior to the pandemic and the ensuing economic difficulties, the Appellant was an ardent and truthful taxpayer.iv.That the Respondent's instructions to the Appellant’s customers appointing them as agents of the Appellant has greatly hampered the Appellant’s capacity to fulfil the required taxpayer duties.v.That the Respondent did not consider the fact that formal and proper communication to the Appellant on the tax matter was not received hence the Appellant had knowledge of the same.v.That regardless of the Appellant notifying the Respondent that Respondent's official communication demanding tax deficit payments from the Appellant failed to reach the Appellant, the Respondent proceeded to assess immediate payable tax of Kshs 9,387,570. 60 in disregard of the Appellant's explanation.v.That the Respondent hurriedly handled the Appellant's case with due disregard to the principles of natural justice.v.That the Respondent’s decision was against the weight of evidence submitted by the Appellant.v.That the Respondent’s decision of 19 December 2022 was erroneous and oppressive to the Appellant.

Appellant’s Case 6. In support of the Appeal, the Appellant lodged a Statement of Facts dated 8th March 2023 and filed on 9th March 2023.

7. The Appellant’s Statement of Facts is composed of two paragraphs as follows:i.That, the Respondent did not ensure that the intended official communication concerning the Appellant’s tax situation reach the Appellant in due time for proper response; andii.That the Appellant has already shown, from the onset, willingness to handle this matter amicably and through a mediation process and already proposed the same.

Appellant’s Prayers 8. The Appellant made the following prayers:a.That the Appeal be allowed.b.That the decision/Ruling of 19th December 2022 to be set aside;c.That the matter be subjected to Alternative Dispute Resolution (ADR) for determination.d.That any and all instructions to agents such as the Principal Cardinal Otunga High School, and to any other customer and/or debtor of the Appellant by the Respondent making them agents of the Appellant for the Respondent in this matter be withdrawn.e.That all instructions to the Appellant's customers and debtors by the Respondent making them agents of the Appellant for the Respondent in this tax matter be withdrawn.

Respondent’s Case 9. In response to the Appeal, the Respondent filed its Statement of Facts on 29th March 2023 and written submissions dated 24th August 2023 and filed on 25th August 2023.

9. The Respondent stated that the objection decision was issued based on the facts that the Appellant was requested to provide a reconciliation to explain the variances noted for the period under review but the Appellant did not provide the same. The Respondent also stated that the Appellant provided amended audited financial statements for review but did not provide supporting documents for purchases and expenses claimed for the period under review.

Vat 11. On VAT additional assessment for December 2020, the Respondent argued that the VAT assessment was based on undeclared sales of Kshs. 9,776,753. 00 per Withholding VAT certificates. The Respondent argued that a review of VAT returns for the said period established that the taxpayer declared total sales of Kshs. 10,810,268. 00. The Respondent maintained that while the taxpayer declared this amount, the Appellant needed to show that the specific sales arising from the withholding VAT certificate were part of the declared sales.

12. The Respondent argued that the Appellant was requested to provide a reconciliation showing how and when the sales were declared but the Appellant failed to provide the same. The Respondent also maintained that the Appellant did not provide sales invoices requested for review leading to total rejection of the Appellant’s objection.

13. With regards to VAT additional assessment for December 2017, the Respondent argued that the VAT assessment was based on variance of Kshs. 4,255,700. 00 between turnover as per income tax company return (Kshs. 4,588,000. 00) and turnover as per VAT returns (Kshs. 332,300. 00). It is theRespondent’s case that the Appellant was requested to provide a reconciliation showing how and when the sales were declared but the Appellant failed to provide the same. The Respondent also argued that the Appellant did not provide sales invoices requested for review.

14. In addition, the Responded stated that the taxpayer deals in construction which is vatable. The Respondent stated that it had to reject the Appellant’s objection since the Appellant did not provide supporting documents.

Income Tax 15. With regard to income tax additional assessments, the Respondent’s case is that the Appellant was requested to provide a reconciliation of the variances but it failed to do so. The Respondent also argued that whereas the taxpayer provided amended audited financial statements for review, the Appellant did not provide sales invoices, purchases invoices, and supporting documents for expenses claimed for review therefore, the Respondent rejected the

Appellant’s objection.Response to the Memorandum of Appeal 16. In response to grounds (i) and (ii) of the Memorandum of Appeal, the Respondent averred that the assessments were correctly issued and conform to the Value Added Tax Act, No. 35 of 2013. The Respondent also adds that the Appellant lodged its objection to the assessments for the period under review on 8th October 2021 on iTax but it was invalidated for lack of supporting documents, however the Appellant validated its objection thereby the Respondent issued its objection decision pursuant to section 51 (11) of the Tax Procedures Act, No. 29 of 2015 (hereinafter ‘TPA’).

17. In response to ground 9 (ii) of the Memorandum of Appeal, the Respondent averred that the some of the assessments issued against the Appellant related to periods prior to the Covid-19 pandemic and the Appellant failed to provide supporting documents requested. As a result, the Respondent made the assessment based on the only available information and the best judgement. The Respondent relied on Section 24 of the TPA and argued that it empowers the Respondent or require production of such documents vide issuance of notice as deemed necessary in determination of tax liability.

18. In response to ground 4 of the Memorandum of Appeal, the Respondent averred that the Appellant was issued with a demand letter dated 19th December 2022. From the foregoing the Appellant averred that the matter had already been forwarded for enforcement after the expiry of 45 days from the date of the objection decision since the Appellant had failed to lodge its Appeal.

19. In response to grounds 5 and 6, the Respondent averred that the objection decision and the demand letter issued to the Appellant were sent to the Appellant’s iTax registered electronic mail address twinbrosgeneralcontractors@yahoo.com therefore the Appellant’s assertions that the same were not communicated were untrue.

20. The Respondent relied on Section 56(1) of the TPA to state that the said law places the burden of proof in tax matters on the Appellant who in this case failed to avail evidence that would support its objection.

21. The Respondent also relied on the provisions of Section 107 of the Evidences Act, CAP 80 of Kenya’s Laws (hereinafter ‘Evidence Act’) which provides as follows:“Burden of proof. 1. Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts, which he asserts must prove that those facts exist.

(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

22. In response to grounds (vii), (viii) and (ix) of the Memorandum of Appeal, the Respondent maintained that the Appellant was provided sufficient time to provide supporting documents for its objection but failed therefore, the Respondent was correct in issuing its decision.

23. According to the Respondent, the Appellant failed to produce any further documents in support of its objection. The Respondent argued that Section 31 of the TPA empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on the best judgment.

24. Whereas the Appellant did not file written submissions, the Respondent lodged written submission dated 24th August 2023 and filed on 25th August 2023. The Respondent relied upon Section 5(1) of the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’) and submitted that tax is charged on a taxable supply made by a registered person in Kenya. The Respondent submitted that tax assessments issued to the Appellant were correctly issued and in conformity with the VAT Act.

25. The Respondent submitted that it confirmed the additional assessments on grounds that the Appellant failed to provide a reconciliation to explain the variances noted for the period under review. The Respondent submitted that whereas Section 24 of the TPA allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent is not bound by the information provided and that the Respondent can assess additional taxes based on any other available information to it and based on its best judgement.

26. In attempt to define what constitutes the Respondent’s best judgment, the Respondent referred the Tribunal to the cases of Commissioner for her Majesty’s Revenue and Customs TC/2017/02292 Saima Khalid Appellant v The Commissioners For Her Majesty’s Respondents Revenue & Customs where it held that, “the very use of the word ‘judgment’ makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them.’

27. The Respondent further submitted that it has a right under Section 59 of the TPA to request for production of documents while the taxpayer has a duty under Section 51(3)(c) of the TPA to provide all relevant documentation in support of their objection. Apart from that, the Respondent submitted that whereas Section 23 of the TPA mandates the Appellant to maintain documents required under any tax law and to provide the same upon request by the Respondent, the Appellant failed to provide the documents even after requests.

28. The Respondent relied on the provisions of Section 56(1) of TPA and Section 30 of the Tax Appeals Tribunal Act No. 40 of 2013 (hereinafter ‘TAT’) to submit that the Appellant has a burden of proof to establish that the Respondent’s decision is wrong but the Appellant had failed to discharge the burden. To this end, the Respondent relied on the case of Pearson Vs. Belcher CH.M Inspector of Taxes) Tax Cases Volume 38 referred to by Justice D.S. Majanja in PZ Cussons East Africa Limited Vs. Kenya Revenue Authority (2013) eKLR to support the position that the taxpayer has to discharge burden of proof.

29. The Respondent also relied on the cases of Afya X-Ray Centre vs Commissioner of Domestic Taxes TAT No. 70 of 2017 and Greenroad Kenya Limited vs Commissioner of Domestic Taxes TAT Appeal No. 538 Of 2021 to support the preposition that where the Appellant fails to provide requested documents, then the Respondent cannot be faulted for raising the assessment in accordance with the availed documents. Consequently, the Respondent submitted that its decision is justified in law.

Respondent’s Prayers 30. The Respondent prayed that the objection decision dated 29th August 2022 be upheld and the Appeal be dismissed for lack of merit.

Issues for Determination 31. The Tribunal having considered the parties’ pleadings documents and submissions puts forth the following single issue for determination:Whether the Respondent’s objection decision dated 29th August 2022 was justified.

Analysis and Findings 32. The Tribunal wishes to analyse the issue as hereunder:

33. To address this issue, the Tribunal examines two factors. The first issue is the Statement of Facts as filed by the Appellant, and the second is documentary evidence as filed by the Appellant.

34. Section 13(2)(b) of TAT requires that an Appellant file its statement of facts. The Tribunal hastens to add that the statement of facts should support and expound the contents of the memorandum of appeal. The statement of facts should explain why and how the Respondent’s decision is incorrect. This is provided for in Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015.

35. More particularly the Tribunal notes the provisions of Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 which provide as follows:‘‘(1) Statement of fact signed by the appellant shall set out precisely all the facts on which the appeal is based and shall refer specifically to documentary evidence or other evidence which it is proposed to adduce at the hearing of the appeal.2. The documentary evidence referred to in paragraph (1) shall be annexed to the statement of fact.’’

36. The Tribunal notes that the question then, is whether the Appellant’s Statement of Facts sets out precisely all the facts on which the Appeal is based? The Tribunal has already noted that the Appellant’s Statement of Facts is a two-paragraph statement. Whereas the Memorandum of Appeal is comprehensive, the Statement of Facts was lacking in that it did not explain why and how the Respondent’s decision is wrong. The Tribunal finds that the Appellant’s Statement of Facts falls short of the requirements under Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015.

37. The second factor to evaluate is whether documentary evidence as filed by the Appellant is sufficient to discharge its burden of proof. The Respondent alleged that the Appellant did not provide documentary evidence. The Respondent argued that on 24th April 2022 the Appellant was requested to provide a reconciliation showing how and when the sales were declared, and the Appellant, vide an electronic email dated on 25th April 2022 undertook to provide the same within 14 days, though the Respondent gave them up to 29th April 2022. The Appellant failed to provide the same as it responded on 29th June 2022 by providing only bank statements. The Respondent also argued that the Appellant did not provide documents such as sales invoices, purchases invoices, and supporting documents for expenses claimed.

38. The Tribunal has examined the documentary evidence as filed by the Appellant. The Tribunal notes that the Appellant filed one document in support of the Appeal, that is, the letter dated 19th December 2022, even though the Appellant’s list of documents lists three documents namely the aforementioned letter dated 19th December 2022, the Notice of Appeal and letter of response to tax demands dated 23rd December 2022 to the Respondent.

39. There is no doubt that the Appellant failed to file documentary evidence to support the Appeal. This is contrary to Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 which mandates the Appellant to file a Statement of Facts which must “refer specifically to documentary evidence or other evidence which it is proposed to adduce at the hearing of the appeal; and the documentary evidence referred to in paragraph must be annexed to the statement of fact.” (Emphasis added)

40. Under the circumstances, the Tribunal evaluate whether the Respondent erred in confirming additional assessments as the Appellant failed to file relevant documentary evidence.

41. Section 30 of TAT provides that:‘In a proceeding before the Tribunal, the appellant has the burden of proving— (a) Where an appeal relates to an assessment, that the assessment is excessive; or (b) In any other case, that the tax decision should not have been made or should have been made differently.’

42. In addition Section 56 (1) of TPA provides as thus:‘In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’

43. This Tribunal in the case of Digital Box Limited v Commissioner of domestic investigations and Enforcement [2020] affirmed that the burden to prove that the Commissioner’s decision is wrong falls on the taxpayer. Similarly, the High Court in Darwine Wholesalers Limited v Commissioner of Investigations and Enforcement (Income Tax Appeal E051 of 2021) [2023] KEHC 23537 (KLR) held as follows:

“Under section 59 of the TPA and section 43 of the VAT Act the Commissioner is expressly empowered to ask for additional information to ascertain the tax chargeable. This legal position is in consonance with section 107 and 112 of the Evidence in that the balance of proof lies with the party with the knowledge of facts. Further section 30 of the Tax Appeals Tribunal Act (TATA) and section 56 of the TPA imposes the burden of proof on the tax payer to prove that an assessment was wrong or that it was excessive.” 44. The Tribunal agrees with the Respondent’s submissions that the Appellant failed to discharge its burden of proof. Consequently, the Tribunal finds and holds that the Appellant failed to provide a proper Statement of Facts and failed to file documentary evidence to discharge its statutory burden of proof.

45. Having established the foregoing, the Tribunal finds no reason to interfere with the Respondent’s objection decision dated 29th August 2022 which it has found to be justified.

Final Decision 46. The upshot to the foregoing is that the Appeal lacks merit. Consequently, the Tribunal makes the following Orders:a.The Appeal is hereby dismissed.b.The objection decision dated 29th August, 2022 be and is hereby upheld.c.Each party to bear its own costs.

47. It is so ordered.

DATED and DELIVERED at NAIROBI this 22nd Day of March, 2024CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K NGALA - MEMBERGEORGE KASHINDI - MEMBERSPENCER S. OLOLCHIKE - MEMBER